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1 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thailand’s Competitiveness: Creating the Foundations for Higher Productivity
Professor Michael E. PorterInstitute for Strategy and Competitiveness
Harvard Business School
Bangkok, Thailand4 May 2003
This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “Building the Microeconomic Foundations of Competitiveness,” in The Global Competitiveness Report 2002, (World Economic Forum, 2002), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and joint work with Dr. Christian Ketels and the Sasin Graduate School of Business on Thai competitiveness financed by the NESDB. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of Michael E. Porter.Further information on Professor Porter’s work and the Institute for Strategy and Competitiveness is available at www.isc.hbs.edu
2 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thailand’s Economy in 2003
• Thailand has registered economic growth through the 1990s, and attracted substantial foreign investment
• The economy has achieved high employment and comparatively low poverty rates despite the Asian Crisis
BUT
• The Asian Crisis hit Thailand first and harder, indicating the fundamental weaknesses of the historical approach
• Growth after the Crisis was driven by devaluation and domestic stimuli packages
• Despite the recent growth, GDP per capita remained flat over the period since 1995
3 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
China
Myanmar
Vietnam
Singapore
Taiwan
Malaysia
Philippines
Hong Kong
Indonesia
Thailand
Comparative Economic PerformanceSelected Asian Economies
Annual Growth Rate of Real GDP
Source: EIU (2002)
Countries sorted by1995-2002 GDP Growth:
4 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
What is Competitiveness?
• Competitiveness is determined by the productivity with which a nation uses its human, capital, and natural resources. Productivity sets a nation’s or region’s standard of living (wages, returns to capital, returns to natural resource endowments)
– Productivity depends both on the value of products and services (e.g. uniqueness, quality) as well as the efficiency with which they are produced
– It is not what industries a nation competes in that matters for prosperity, but how firms compete in those industries
– Productivity in a nation is a reflection of what both domestic and foreign firms choose to do in that location. The location of ownership is secondary for national prosperity
– The productivity of “local” industries is of fundamental importance to competitiveness, not just that of traded industries
– Devaluation does not make a country more competitive
• Nations compete in offering the most productive environment for business
• The public and private sectors play different but interrelated roles in creating a productive economy
5 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Challenges to Thai Prosperity
• Prosperity has stagnated over the period 1995 – 2002. The harder impact of the Asian Crisis outweighed the relatively lower reliance on the sluggish world IT markets
• Productivity is comparatively low and growing only slowly
• While export market share has stabilized after falling between 1995 and 1998, devaluation has reduced the prosperity gain for Thailand
• Foreign Direct Investment (FDI) inflows are reverting back to low pre-Asian Crisis levels. FDI stock is still below regional averages
• Innovation and technology performance is weak, though showing some signs of improvement
• Prosperity has stagnated over the period 1995 – 2002. The harder impact of the Asian Crisis outweighed the relatively lower reliance on the sluggish world IT markets
• Productivity is comparatively low and growing only slowly
• While export market share has stabilized after falling between 1995 and 1998, devaluation has reduced the prosperity gain for Thailand
• Foreign Direct Investment (FDI) inflows are reverting back to low pre-Asian Crisis levels. FDI stock is still below regional averages
• Innovation and technology performance is weak, though showing some signs of improvement
• Thailand’s fundamental challenge is microeconomic
• Without an improvement in microeconomic fundamentals, current growth will be short-lived
• Thailand must move to a new model of competitiveness
6 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
0%
10%
20%
30%
40%
-4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0%
Comparative Economic PerformanceSelected Middle- and Lower-Income Economies
Sri Lanka
Source: World Development Indicators 2002
GDP per Capita, 2001, US=100
CAGR of GDP per Capita Relative to the US, 1995-2001
South Africa
Argentina
Ecuador
Bulgaria
Costa Rica
Colombia
Chile
Brazil
Bolivia
El Salvador
Haiti
Honduras
Hungary
India
LithuaniaMalaysia
Mexico
Nicaragua
Nigeria
Peru
Poland
RomaniaThailand
Vietnam
Venezuela
Uruguay
Botswana
China(12%, +4.5%)
Croatia
Dominican Rep.
Estonia(30%, +4.3%)
GuatemalaIndonesia
JamaicaJordan
Latvia(22%, +3.7%)
Morocco
Namibia
Philippines
Russia
Slovak Republic
TunisiaTurkey
Ukraine
7 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
-2% 0% 2% 4% 6% 8% 10%
Comparative Labor Productivity PerformanceSelected Asian Economies
Source: EIU (2002)
Labor Productivity (GDP per Employee), 2000
Growth of Labor Productivity, CAGR, 1995-2000
Vietnam
Thailand
Singapore
Hong Kong
China
Malaysia
Taiwan
Philippines
Indonesia
• Thailand’s labor productivity is far behind leading Asian economies and productivity growth is lagging badly
Myanmar
8 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thai ProductivityCluster Examples
• Tourism– Thailand generates less revenue per tourist than leading competitors, for example
Indonesia– Thailand has not been able to increase the revenue per tourists over time. Even after the
1997 devaluation, revenues in terms of Thai Baht only remained stable, while tourists reduced their spending in terms of US-Dollar
• Automotive– Assembly plants in Thailand produce fewer cars per employee than the international
benchmark countries (11 versus 45 per year).– Low labor cost allow Thai assembly plants to be cost competitive despite a much lower
level of automation – Thai-based producers have low incentives to adopt world-class technology to improve
productivity, but this perpetuates low wages
• Food industry– Thai companies employ workers without specific training and pay close to the minimum
wage, yet complain about high turnover– Thai food processors are trapped in a low-productivity, low-wage, low-skill system.
Employees leave for more productive, better paying industries
Source: Sasin Study (2003)
9 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
-5%
0%
5%
10%
15%
20%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
FDI Inflows as percentage of
GDP
Source: World Development Indicators, World Bank, SMC Analysis
Malaysia
ThailandPhilippines
Indonesia
Singapore
China
Comparative Inward Foreign Investment FlowsSelected Asian Economies
• Thailand received strong FDI inflows in the years immediately after the devaluation in 1997 but is now falling back to the FDI inflow levels of its immediate neighbors
10 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
Annual U.S. patents per 1 million
population, 2001
Compound annual growth rate of US-registered patents, 1990 - 2001
International Patenting Output
0
50
100
150
200
250
300
350
400
0% 10% 20% 30% 40%
Australia
Canada
Germany
Japan
South Korea
New Zealand
Singapore
Sweden
Taiwan
UK
Israel
= 10,000 patents granted in 2001
USA
Finland
Netherlands
Thailand
• Thailand’s level of innovation as measured by U.S. patenting is insignificant
11 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thailand’s Competitiveness
• Assessing Thailand’s Competitive Position
• Thailand’s Competitiveness Agenda in 2003
12 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Innovation and Competitiveness
ProductivityProductivity
Innovative CapacityInnovative CapacityInnovative CapacityInnovative Capacity
Competitiveness
• Innovation is more than just scientific discovery
• There are no low-tech industries, only low-tech firms
ProsperityProsperityProsperityProsperity
13 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Microeconomic Foundations of DevelopmentMicroeconomic Foundations of Development
Quality of the Quality of the MicroeconomicMicroeconomic
BusinessBusinessEnvironmentEnvironment
Quality of the Quality of the MicroeconomicMicroeconomic
BusinessBusinessEnvironmentEnvironment
SophisticationSophisticationof Companyof Company
Operations andOperations andStrategyStrategy
SophisticationSophisticationof Companyof Company
Operations andOperations andStrategyStrategy
Determinants of Productivity and Productivity Growth
Macroeconomic, Political, Legal, and Social Macroeconomic, Political, Legal, and Social Context for DevelopmentContext for Development
Macroeconomic, Political, Legal, and Social Macroeconomic, Political, Legal, and Social Context for DevelopmentContext for Development
• A sound macroeconomic, political, legal, and social context creates the potential for competitiveness, but is not sufficient
• Competitiveness ultimately depends on improving the microeconomic capability of the economy and the sophistication of local companies and local competition
14 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Micro reform is impeded
by macro economic volatility
that reduces
company investment
Macro reform alone leads to short term capital inflows and growth spurts that ultimately are not sustainable
Integration of Macro- and Microeconomic Reforms
Macroeconomic Macroeconomic reformreform
Microeconomic Microeconomic reformreform
Create the opportunityfor productivity
Required to achieveproductivity
Productivity growth allows economic growth and rising incomes without inflation, making macroeconomic
stability easier to achieve
Stability and confidence support investment and upgrading
15 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Context for Context for Firm Firm
Strategy Strategy and Rivalryand Rivalry
Context for Context for Firm Firm
Strategy Strategy and Rivalryand Rivalry
Related and Supporting Industries
Related and Supporting Industries
FactorFactor(Input) (Input)
ConditionsConditions
FactorFactor(Input) (Input)
ConditionsConditions
Demand Demand ConditionsConditionsDemand Demand
ConditionsConditions
Productivity and the Microeconomic Business Environment
• Successful economic development is a process of successive economic upgrading, in which the business environment in a nation evolves to support and encourage increasingly sophisticated ways of competing
Sophisticated and demanding local customer(s)
Local customer needs that anticipate those elsewhere
Unusual local demand in specialized segments that can be served nationally and globally
Presence of high quality, specialized inputsavailable to firms
–Human resources–Capital resources–Physical infrastructure–Administrative infrastructure–Information infrastructure–Scientific and technological
infrastructure–Natural resources
Access to capable, locally based suppliers and firms in related fields
Presence of clusters instead of isolated industries
A local context and rules that encourage investment and sustained upgrading
–e.g., Intellectual property protection
Meritocratic incentive systems across all major institutions
Open and vigorous competition among locally based rivals
16 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
The California Wine Cluster
Educational, Research, & Trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Educational, Research, & Trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Growers/VineyardsGrowers/Vineyards
Sources: California Wine Institute, Internet search, California State Legislature. Based on research by MBA 1997 students R. Alexander, R. Arney, N. Black, E. Frost, and A. Shivananda.
Wineries/ProcessingFacilities
Wineries/ProcessingFacilities
GrapestockGrapestock
Fertilizer, Pesticides, Herbicides
Fertilizer, Pesticides, Herbicides
Grape Harvesting Equipment
Grape Harvesting Equipment
Irrigation TechnologyIrrigation Technology
Winemaking EquipmentWinemaking Equipment
BarrelsBarrels
LabelsLabels
BottlesBottles
Caps and CorksCaps and Corks
Public Relations and Advertising
Public Relations and Advertising
Specialized Publications (e.g., Wine Spectator,
Trade Journal)
Specialized Publications (e.g., Wine Spectator,
Trade Journal)
Food ClusterFood ClusterFood ClusterFood Cluster
Tourism ClusterTourism ClusterTourism ClusterTourism ClusterCalifornia California Agricultural ClusterAgricultural Cluster
California California Agricultural ClusterAgricultural Cluster
State Government Agencies(e.g., Select Committee on Wine
Production and Economy)
17 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Levels of Clusters
• There is often an array of clusters in a given field in different locations, each with different levels of specialization and sophistication
• Global innovation centers, such as Silicon Valley in semiconductors, are few in number. If there are multiple innovation centers, they normally specialize in different market segments
• Other clusters focus on manufacturing, outsourced service functions, or play the role of regional assembly or service centers
• Firms based in the most advanced clusters often seed or enhance clusters in other locations in order to reduce the risk of a single site, access lower cost inputs, or better serve particular regional markets
• The challenge for an economy is to move from isolated firms to an array of clusters, and then to upgrade the breadth and sophistication of clusters to more advanced activities
18 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Levels of ClustersLeading Footwear Clusters
Vietnam/Indonesia• OEM Production • Focus on the low cost
segment mainly for the European market
China• OEM Production• Focus on low cost
segment mainly for the US market
Portugal• Production • Focus on short-
production runs in the medium price range
Romania• Production subsidiaries
of Italian companies• Focus on lower to
medium price range
United States• Design and marketing • Focus on specific market
segments like sport and recreational shoes and boots
• Manufacturing only in selected lines such as hand-sewn casual shoes and boots
Source: Research by HBS student teams in 2002
Italy• Design, marketing,
and production of premium shoes
• Export widely to the world market
19 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
General General General General
• Chambers of Commerce
• Professional associations
• School networks
• University partner groups
• Religious networks
• Joint private/public advisory councils
• Competitiveness councils
• Chambers of Commerce
• Professional associations
• School networks
• University partner groups
• Religious networks
• Joint private/public advisory councils
• Competitiveness councils
Cluster-specificCluster-specificCluster-specificCluster-specific
• Industry associations
• Specialized professional associations and societies
• Alumni groups of core cluster companies
• Incubators
• Industry associations
• Specialized professional associations and societies
• Alumni groups of core cluster companies
• Incubators
Institutions for Collaboration
• Institutions for collaboration (IFC) are formal and informal organizations that
- facilitate the exchange of information and technology
- conduct joint activities
- foster coordination among firms
• IFCs can improve the business environment by
- creating relationships and level of trust that make them more effective
- defining of common standards
- conducting or facilitating the organization of collective action in areas such as procurement, information gathering, or international marketing
- defining and communicating common beliefs and attitudes
- providing mechanisms to develop a common economic or cluster agenda
20 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Influences on CompetitivenessMultiple Geographic Levels
Broad Economic AreasBroad Economic Areas
Groups of Neighboring Groups of Neighboring NationsNations
States, ProvincesStates, Provinces
Cities, Metropolitan Cities, Metropolitan AreasAreas
NationsNations
World EconomyWorld Economy
21 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Specialization of Regional EconomiesSelect U.S. Geographic Areas
BostonAnalytical InstrumentsEducation and Knowledge CreationCommunications Equipment
BostonAnalytical InstrumentsEducation and Knowledge CreationCommunications Equipment
Los Angeles AreaApparelBuilding Fixtures,
Equipment and Services
Entertainment
Los Angeles AreaApparelBuilding Fixtures,
Equipment and Services
Entertainment
ChicagoCommunications EquipmentProcessed FoodHeavy Machinery
ChicagoCommunications EquipmentProcessed FoodHeavy Machinery
Denver, COLeather and Sporting GoodsOil and GasAerospace Vehicles and Defense
Denver, COLeather and Sporting GoodsOil and GasAerospace Vehicles and Defense
San DiegoLeather and Sporting GoodsPower GenerationEducation and Knowledge Creation
San DiegoLeather and Sporting GoodsPower GenerationEducation and Knowledge Creation
San Francisco-Oakland-San Jose Bay AreaCommunications EquipmentAgricultural ProductsInformation Technology
San Francisco-Oakland-San Jose Bay AreaCommunications EquipmentAgricultural ProductsInformation Technology
Seattle-Bellevue-Everett, WAAerospace Vehicles and DefenseFishing and Fishing ProductsAnalytical Instruments
Seattle-Bellevue-Everett, WAAerospace Vehicles and DefenseFishing and Fishing ProductsAnalytical Instruments
HoustonHeavy Construction ServicesOil and GasAerospace Vehicles and Defense
HoustonHeavy Construction ServicesOil and GasAerospace Vehicles and Defense
Pittsburgh, PAConstruction MaterialsMetal ManufacturingEducation and Knowledge
Creation
Pittsburgh, PAConstruction MaterialsMetal ManufacturingEducation and Knowledge
Creation
Atlanta, GAConstruction MaterialsTransportation and LogisticsBusiness Services
Atlanta, GAConstruction MaterialsTransportation and LogisticsBusiness Services
Raleigh-Durham, NCCommunications EquipmentInformation TechnologyEducation andKnowledge Creation
Raleigh-Durham, NCCommunications EquipmentInformation TechnologyEducation andKnowledge Creation
Wichita, KSAerospace Vehicles and
DefenseHeavy MachineryOil and Gas
Wichita, KSAerospace Vehicles and
DefenseHeavy MachineryOil and Gas
Note: Clusters listed are the three highest ranking clusters in terms of share of national employmentSource: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School
22 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Stages of Competitive Development
Factor-Driven Factor-Driven EconomyEconomy
Factor-Driven Factor-Driven EconomyEconomy
Investment-Investment-Driven EconomyDriven Economy
Investment-Investment-Driven EconomyDriven Economy
Innovation- Innovation- Driven EconomyDriven Economy
Innovation- Innovation- Driven EconomyDriven Economy
Source: Porter, Michael E., The Competitive Advantage of Nations, The Free Press, 1990
InputCost
Efficiency Through Heavy Investment
Unique Value
23 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thailand’s Competitiveness Agenda
• Upgrade the Business Environment
• Activate Cluster Development
• Transform Company Strategies
• Redefine the Roles of Business and Government
• Decentralize More of Economic Policy to the Regional Level
• Lead a Cross-National Strategy
24 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Context for Firm
Strategy and Rivalry
Context for Firm
Strategy and Rivalry
Related and Supporting Industries
Related and Supporting Industries
Factor(Input)
Conditions
Factor(Input)
Conditions
Demand ConditionsDemand
Conditions
National Business Environment OverviewThailand’s Relative Strengths and Weaknesses
– Most Thai clusters are focused on a few labor-intensive stages of their industries’ value chain
– Cluster organizations exist, but tend to be focused solely on lobbying
+ Inward foreign investment has raised the level of competition
– Most companies compete on low input costs and invest little in creating capabilities
– Complex, high tariffs and weak anti-trust laws impede competition
– Government bureaucracy and corruption create significant costs
– Local Thai demand tends to be unsophisticated and does not generally lead international trends
+ In pick-up trucks, however, Thailand is one of the most developed markets in the world
+ Thailand has a rich wildlife, beautiful locations, and some natural resources
+ Physical infrastructure, especially roads, is good
– Infrastructure in Bangkok is overtaxed– The general skill level of the Thai
labor force is low, and educational programs do not match company needs
– Communication networks are expensive and weak outside of Bangkok
– Inadequate development of financial markets
– Low level of domestic technological capacity
25 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Educational PerformanceSelected Asian Countries
90
82 8275 73
7067 66 65 63
60 5855 55
0
20
40
60
80
100
Korea
, Rep
. of
Japa
n
Philipp
ines
Singap
ore
China
Sri La
nka
Viet N
am
Mal
aysia
Indo
nesia
Hong
Kong,
Chi
na (S
AR)
Thaila
nd
Lao
People
's Dem
. Rep
.In
dia
Mya
nmar
Source: UN – Human Development Indicators
Gross Enrolment in Primary, Secondary, and Tertiary
Education, 1999
26 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
12
3
7
63
35
28
3
4129
3 9 8
2812
19
Source : TDRI Survey 2001
Vocationallevel
Under-graduatelevel
Post graduatelevel
Very dissatisfied
Dissatisfied
Neutral
Satisfied
Very satisfied
Educational System QualityEmployer Satisfaction
• Many Thai employers are unsatisfied with the quality of the education system at the more advanced levels, especially at the vocational level
27 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Quality of the Educational SystemCluster Examples
• Tourism– Graduates from many educational institutions are not trained for
tasks that are essential in tourism-related businesses
– More than 40% of tourism-related courses prepare graduates for management positions. However, management positions account for only 3% of the workforce needs in the Thai tourism cluster
• Automotive– The capabilities of production engineers and technicians graduating
from local educational institutions are often insufficient
– Companies are forced to provide extensive in-house training to integrate new hires
• Information Technology– IT executives report that nearly 50% of all graduates need to be
significantly retrained before being useful
Source: Sasin Study (2003)
28 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Factor(Input)
Conditions
Factor(Input)
Conditions
University/Industry Research Collaboration29
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
Availability of Scientists and Engineers 55
Quality of Scientific Research Institutions 45
Quality of Math and Science Education 41
Intellectual Property Protection 38
Science and TechnologyThailand’s Relative Position
Note: Rank by countries; overall Thailand ranks 35 out of 80 countries (35 on National Business Environment, 53 on GDP pc 2001)Source: Global Competitiveness Report 2002
• Thailand is only slowly moving towards a system with high-quality research institutions and the appropriate incentives for R&D and commercialization
29 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Cooperation in Labor-Employer Relations 9
Extent of Locally Based Competitors 14
Extent of Distortive Government Subsidies 17
Decentralization of Corporate Activity 28
Intensity of Local Competition 29
Tariff Liberalization 31
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a
change of 5 or more ranks since
1998
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
Costs of Other Firms' Illegal/ 46Unfair Activities
Favoritism in Decisions of Government 46 Officials
Hidden Trade Barrier Liberalization 45
Efficacy of Corporate Boards 37
Effectiveness of Anti-Trust Policy 35
Context for Firm Strategy
and Rivalry
Context for Firm Strategy
and RivalryContext for Firm Strategy and Rivalry
Thailand’s Relative Position
Note: Rank by countries; overall Thailand ranks 35 out of 80 countries (35 on National Business Environment, 53 on GDP pc 2001)Source: Global Competitiveness Report 2002
30 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%
Thai Firms Foreign Firms
% of executives’ time spent with government official
Source: Thailand : Business Environment and Governance Survey, Corrupt ion in Thailand Report,OfficeofCivilSer vi ce Commi ssi on, 2 0 0 1
Bureaucracy in Thailand
Evidence
• Thailand ranks 79 out of 80 countries on the extent of bureaucratic red tap in the 2002 Global Competitiveness Report
• Bureaucracy inflicts the largest burden on smaller domestic companies
• Many examples show that corruption and bureaucracy thrive in an environment with elaborate, complex regulations and administrative procedures
Small
Large
Medium
All Thai companies
31 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Tariff Barriers
Source: Sasin Study (2003)
Sectors Tariff Rates (March, 2003)
General WTO AFTA
Food products 60 % 30 – 40 % 5 %
Textile and Apparel 100 % 30 – 44 % 5 %
Foot ware 100 % 30 % 5 %
Diamonds 0 – 20 % 1 – 10 % 0 %
Automotive 100 -200% 80 % 5 %
• Historically, Thailand followed an import-substitution strategy based on high tariffs and domestic content requirements
• In the 1990s, the policy changed to support the creation of manufacturing export industries. Export industries could import machinery and inputs tariff-free
• Currently, Thailand is in the process of reducing regional tariff rates in accordance with the ASEAN free trade agreement. However, tariff protection remains significant in many industries and is blunting competition
32 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Barriers to International TradeAutomotive Industry
• The Thai automotive industry was born as a result of trade protection
• While the industry consists of a large number of assembly plants and suppliers, its ability to compete internationally rests almost entirely on low labor costs that compensate for low levels of productivity
• The industry began to export only after the devaluation of the Thai Baht in 1997. Thai-based operations have relatively weak positions in international markets
• Thailand’s progress in becoming the ASEAN automotive production hub is still fragile
• The potential for growth will be limited until Thailand significantly improves its sophistication and technology
Source: Sasin Study (2003)
33 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Change in World Market Share, 1995-2000
Automotive Clusters in the World EconomyTop 25 Exporting Countries by Export Value, 2000
0.0
0.5
1.0
1.5
2.0
2.5
-3% -2% -1% 0% 1% 2%
USA
Japan
Germany Canada
France
UK
Mexico
Note: RCA is defined as a country’s market share in the cluster divided by the country world market share across all exports Source: UNCTAD Trade Data. Author’s analysis.
Spain
Italy
KoreaBelgium
Netherlands
China
Austria
Sweden
Brazil
Singapore
Czech R.
Switzerland
PolandHungary
Portugal
Finland
ThailandAustralia
Revealed Comparative Advantage (RCA), 2000
DD = $35 billion export volume in 2000
34 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Domestic Competition in Thailand
• Foreign investors have significantly improved the level of competition in a number of sectors such as retail
• The increased focus of Thai business groups on markets where they have dominating positions has reduced competitive intensity in some industries
• The Competition Committee has few effective instruments to act against companies with market power– The Competition Act does not, for example, apply to state
owned companies
Source: Global Competitiveness Report 2002, McKinsey 2002, Sasin Study 2003
35 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thai Policy Toward FDI
• Some foreign investors have been encouraged to use older technology to create more (lower paying) jobs
• Historically, the government tried to channel FDI to different parts of the country
– Recently the preferences for investing outside Bangkok have been removed
• Investment incentives are less attractive than, for example, Malaysia and Singapore
• The new strategy seeks to attract regional headquarters without offering any compelling advantages versus other locations.
• Government is searching to promote technology transfer in, for example, electronics but success so far is limited
• No convincing cluster-based approach to FDI attraction is in place
– Special incentives exist in textiles, footwear, and food products
Source: Sasin Study (2003)
36 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Consumer Adoption of Latest Products 21
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
Laws Relating to Information Technology 48
Stringency of Environmental Regulations 39
Presence of Demanding Regulatory 36 Standards
Demand Conditions
Demand Conditions
Demand ConditionsThailand’s Relative Position
Note: Rank by countries; overall Thailand ranks 35 out of 80 countries (35 on National Business Environment, 53 on GDP pc 2001)Source: Global Competitiveness Report 2002
37 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thai Demand ConditionsPick-up Trucks
• Thailand has heavy demand for pick-up trucks that are used for multiple commercial and private uses
• Manufacturers react to the demand by offering more varieties of pick-up truck models in Thailand than in any other national market
• Thailand has a strong and growing position for pick-up trucks in the world market– This is the only segment (apart from tires and rubber-related
products) in the automotive industry in which Thailand has a revealed comparative advantage
– Thailand is the second largest producer of pick-up trucks worldwide behind the United States
• Seek such opportunities in other parts of Thai industry
Source: Sasin Study (2003)
38 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
Local Availability of Specialized 40Research and Training Services
Local Availability of Process Machinery 37
Related and Supporting Industries
Related and Supporting Industries
Extent of Product and Process 17 Collaboration
Local Availability of Components 18and Parts
State of Cluster Development 23
Local Supplier Quantity 29
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
Related and Supporting IndustriesThailand’s Relative Position
Note: Rank by countries; overall Thailand ranks 35 out of 80 countries (35 on National Business Environment, 53 on GDP pc 2001)Source: Global Competitiveness Report 2002
• Thailand is home to an array of clusters, but clusters are shallow and are characterized by weak linkages among cluster participants
39 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Moving Beyond Factor CompetitionPolicy Imperatives
Factor-Factor-Driven EconomyDriven Economy
Factor-Factor-Driven EconomyDriven Economy
• Openness to trade and FDI
• Competition policy
• Protection of physical and intellectual property
• Communications and transportation infrastructure
• Streamline government regulation
• Regional trade
• Increased local rivalry
• Improving factor quality, education
• Advanced financial infrastructure
• Specialization of human capital
• Cluster development (buyers, suppliers)
• Establish infrastructure for innovation
Investment-Investment-Driven EconomyDriven Economy
Investment-Investment-Driven EconomyDriven Economy
40 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Some Immediate Steps
• Negotiate ASEAN Open Skies agreement
• Reduce distortive taxes for particular product groups
• Reduce capital gains tax for venture investments in smaller companies
• Open the telecommunication market
• Negotiate FTA agreement with the United States
41 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thailand’s Competitiveness Agenda
• Upgrade the Business Environment
• Activate Cluster Development
• Transform Company Strategies
• Redefine the Roles of Business and Government
• Decentralize More of Economic Policy to the Regional Level
• Lead a Cross-National Strategy
42 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
-1.0% -0.5% 0.0% 0.5%
Source: UNCTAD Trade Data. Author’s analysis.
Change in Thailand’s World Export Share, 1995 - 2000
Thailand’s Export Performance By Broad Sector1995-2000
Health Care
Food/Beverages
Entertainment
Office(3.7%, +1.3%)
Personal
Textiles/Apparel
Transportation
Multiple Business
Thailand’s average goods export share: 1.24%
Thailand’s average change in world goods export share:
- 0.069%
DD = $1.5 billion export volume in 2000
+
Petroleum/Chemicals
Materials/Metals
+
World Export Share, 2000
Housing/Household Power
Semiconductors/Computers
Telecommunications
Defense
Forest Products
43 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Threats to Traditional Clusters
• Thailand is losing world market position in some of its traditional areas of strength, such as textiles/apparel and food products
• In these clusters, Thailand firms focus on a few, labor-intensive steps in the value chain. They use either imported (e.g., gold, tuna) or locally-produced raw materials, and sell undifferentiated products on anonymous world markets
• Technology is low and not being upgraded
• While these clusters provide many jobs, wages are close to the Thai minimum wage
• Thailand is losing market share both to lower cost locations such as China and to more focused, higher cost locations such as Austria (Leather) or Australia (Food/Beverages)
Source: Sasin Study, UNCTAD Trade Data. Author’s analysis.
44 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Cluster Development Efforts in Thailand
• Tourism– Thailand is home to many of the components of a well-
functioning tourism cluster– There is no overarching strategy for the cluster, despite the
existence of many industry associations for different parts of the cluster, and of many different strategic plans
– The absence of a clear strategy is a key factor in the inability of the cluster to capture more value from tourists
• Food– Government policy and private sector efforts are poorly
coordinated in many segments of the cluster• Import tariffs for inputs and uncoordinated government positions in
international trade negotiations hurt food industries
• Lack of coordination between government institutions and industry associations create ineffective cluster strategies
Source: Sasin Study, Author’s analysis.
45 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
$1,201.12
80 82 84 86 88 90 92 94 96 98 00
Economic Performance of the Thai Tourism ClusterRevenue per Tourist over Time
Source: TAT, World Tourism Organization
In Thai Baht
In US-Dollar
Receipts per Tourist in Thailand
$749
46 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
0% 1% 2% 3% 4% 5% 6% 7%
Agricultural ProductivitySelected Countries
Source: World Development Indicators, World Bank
Change in Agricultural Productivity, CAGR, 1995-1999
Korea
ThailandChina
Japan
Malaysia
Agricultural Productivity, 1999
South Africa
New Zealand
Australia
47 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thai Agriculture
• Thai agricultural production is low and stagnant
• Thai agriculture acts as an overflow valve for the industrial labor market– Agricultural productivity increased somewhat in the 1990s when
subsistence farmers left agriculture to work in manufacturing– In the downturn after the Asian crisis, the outflow from agriculture
slowed and productivity growth fell back
• Thai agriculture is divided in two groups: a few large food companies serving foreign markets, and many small farmers serving domestic markets
• The Thai Ministry for Agriculture has a history of corruption and inefficiency. It is currently being restructured
• There are local colleges that provide training for agriculture, but there activities are controlled centrally and are not well coordinated with local needs
48 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thailand’s Cluster Vision: World Leader in Niche MarketsSelected Niches
Food: Kitchen of the
World
Food: Kitchen of the
World
Fashion: Asia Tropical
Fashion
Fashion: Asia Tropical
Fashion
Tourism: Tourism Capital
Asia
Tourism: Tourism Capital
Asia
Automotive: Detroit of AsiaAutomotive: Detroit of Asia
Software: World Graphic Design Center
Software: World Graphic Design Center
• Important sector with declining world market position• Insufficient value chain presences and lack of brands key issues
• Three (Textiles/Apparel, Jewelry, Leather) important sectors with declining world market share and few linkages
• Insufficient value chain presence and inconsistent policy key issues
• Important sector with potential for significantly higher value creation• Lack of shared vision is critical constraint
• Growing sector with small world market share moving gradually out of protection
• Low level of productivity and innovation key issues
• Very small sector of few companies• Uncompetitive business environment and lack of linkage to existing IT
activities are critical issues
• Concentrating on areas of existing strengths provides the right basis for success
• Focus of government policy should be on increasing Thailand’s attractiveness for the cluster, not on the strategic choices of companies in the cluster
49 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
• Improving the general business environment is essential, but cluster development is needed to attain middle-income levels
• Developing economies should upgrade traditional clusters including agriculture, never abandon them
• Recruitment of foreign direct investment should focus on existing and emerging clusters, not generalized appeals
– Incentives should be weighted toward training, infrastructure, and other areas that upgrade the cluster versus general subsidies and tax holidays
• Existing MNCs can become nodes for cluster development– The best way to retain companies is to make them part of a cluster to support higher
local productivity
• Free trade zones should be organized around clusters, and regulations designed to encourage linkages with the local economy
• A formal structure for cluster development is an important component of economic development
– Private sector led– Government convening and participation– Seed funding for cluster assessment and the formation of cluster-based industry groups
Cluster Development in Emerging EconomiesSome Principles
50 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Some Immediate Steps
• Create private sector-led cluster competitiveness councils for clusters throughout the economy– Clusters willing to take responsibility for cluster development
qualify for matching funds – Potential new cluster groups include furniture and health
services
• Launch cluster-based efforts to improve secondary and vocational education programs
• Develop and publicize productivity metrics for a wide array of Thai clusters
51 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thailand’s Competitiveness Agenda
• Upgrade the Business Environment
• Activate Cluster Development
• Transform Company Strategies
• Redefine the Roles of Business and Government
• Decentralize More of Economic Policy to the Regional Level
• Lead a Cross-National Strategy
52 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Typical Strategic Errors in Emerging Economies
Corporate Direction
• Opportunistic pursuit of new businesses, seizing profitable opportunities in whatever area they arise
• Strategy driven by government relationships and concessions
• Business groups become conglomerates with operations in highly disparate areas
Corporate Direction
• Opportunistic pursuit of new businesses, seizing profitable opportunities in whatever area they arise
• Strategy driven by government relationships and concessions
• Business groups become conglomerates with operations in highly disparate areas
Activities
• Labor intensive parts of the value chain are emphasized
• Low investment in machinery, equipment, brands, R&D, and training
• Foreign partners provide many inputs, know how, and financing
Activities
• Labor intensive parts of the value chain are emphasized
• Low investment in machinery, equipment, brands, R&D, and training
• Foreign partners provide many inputs, know how, and financing
Strategic Positioning
• Wide product lines serving all local industry segments
• Price is the primary basis of competition
• Low input costs are primary competitive advantage
• Offerings of foreign and other domestic competitors are imitated
Strategic Positioning
• Wide product lines serving all local industry segments
• Price is the primary basis of competition
• Low input costs are primary competitive advantage
• Offerings of foreign and other domestic competitors are imitated
53 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Company Operations and StrategyThailand’s Relative Position 2002
Prevalence of Foreign Technology 3 Licensing
Extent of Regional Sales 21
Breadth of International Markets 22
Degree of Customer Orientation 24
Willingness to Delegate Authority 29
Note: Rank by countries; overall Thailand ranks 35 out of 80 countries (33 on Company Operations and Strategy, 53 on GDP pc 2001)Source: Global Competitiveness Report 2002
Reliance on Professional 53Management
Capacity for Innovation 49
Control of International Distribution 46
Production Process Sophistication 45
Company Spending on R&D 45
Nature of Competitive Advantage 45
Extent of Branding 41
Extent of Incentive Compensation 39
Extent of Staff Training 36
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
54 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Company Operations and Strategy OverviewThailand’s Relative Strengths and Weaknesses
Strengths
• Increasing level of customer orientation
• Increasing focus on regional versus advanced distant foreign markets
• Signs of improving management quality
Weaknesses
• Competing on global commodity markets based on low costs of factor inputs
• Narrow presence in the value chain with weaknesses in marketing, brand development, and the control of international distribution channels
• Low investment in human resources and innovation
55 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
The Role of Business Groups
• Leading Thai business groups are Charoen Pokphand (CP) Group and Siam Cement
– These groups are professionally managed and have significant foreign sales
• Before the Asian Crisis, Thai business groups diversified into an increasing number of industries, often driven by joint ventures with foreign investors
– With many growth opportunities domestically, Thai companies did not increase their understanding of foreign export markets
• After the Asian Crisis, Thai business groups have been faced with excessive debt and have reduced the number of businesses significantly
– In a given industry, they tend to still focus on the labor-intensive processing and production parts of the value chain
• Many of the large groups have strong connections with government and have enjoyed protected market positions in Thailand for periods of time
• The development of SMEs has been stunted
Source: Sasin Study (2003)
56 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
0%
15%
0% 5% 10%
Comparative Outward Foreign InvestmentSelected Asian Economies
Thailand
Malaysia
FDI Stocks Abroad as % of GDP, Average 1998-2000
FDI Outflows as % of Gross Fixed Capital Formation, Average 1998-2000
PhilippinesChina
Source: World Investment Report 2002-
• Thai companies do not make significant outward foreign direct investment
Indonesia
South Korea
Singapore(40%, 12%)
57 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Internationalization Strategy of Thai Companies
• Thai companies export predominantly to advanced markets in the United States, Europe, and Japan
– Growing markets are China and the ASEAN countries, which have now again reached their 1995 pre-Asian Crisis share of Thai exports
• Thai companies have very low foreign investments
• Thai companies can use an internationalization strategy focused on neighboring countries as an important step to improve their value chain presence
• Thai companies can profit from serving markets in the region, and they can profit from accessing low cost factor inputs in less developed countries
58 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thailand’s Competitiveness Agenda
• Upgrade the Business Environment
• Activate Cluster Development
• Transform Company Strategies
• Redefine the Roles of Business and Government
• Decentralize More of Economic Policy to the Regional Level
• Lead a Cross-National Strategy
59 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Shifting Responsibilities for Economic Development
Old ModelOld ModelOld ModelOld Model
• Government drives economic development through policy decisions and incentives
• Government drives economic development through policy decisions and incentives
New ModelNew ModelNew ModelNew Model
• Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and institutions for collaboration
• Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and institutions for collaboration
60 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Related and Supporting Industries
Related and Supporting Industries
Factor (Input)
Conditions
Factor (Input)
Conditions
Demand ConditionsDemand
Conditions
Context for Firm
Strategy and Rivalry
Context for Firm
Strategy and Rivalry
Government Policies and the Business Environment
GovernmentGovernment
61 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
• Macroeconomic, political, legal, and social context– Establish a stable and predictable macroeconomic, legal, and political environment – Improve the social conditions of citizens
• General microeconomic business environment– Improve the availability, quality, and efficiency of cross-cutting or general purpose inputs,
infrastructure, and institutions– Set overall rules and incentives governing competition that encourage productivity growth
• Clusters– Facilitate cluster development and upgrading
• Process of Economic Change– Create institutions and processes for upgrading competitiveness that inform citizens and
mobilize the private sector, government at all levels, educational and other institutions, and civil society to take action
Roles of Government in Economic Development
62 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Role of the Private Sector in Economic Development
• A company’s competitive advantage is partly the result of the local environment
• Company membership in a cluster offers collective benefits
• Private investment in “public goods” is justified
• Take an active role in upgrading the local infrastructure
• Nurture local suppliers and attract new supplier investments
• Work closely with local educational and research institutions to upgrade quality and create specialized programs addressing cluster needs
• Provide government with information and substantive input on regulatory issues and constraints bearing on cluster development
• Focus corporate philanthropy on enhancing the local business environment
• An important role for trade associations
– Greater influence
– Cost sharing
63 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Institutions for Collaboration in Thailand
• Thailand has a significant number of institutions for collaboration on the general and on the cluster level
• The effectiveness of many of these institutions for competitiveness upgrading is limited
– Institutions with an economy-wide mandate tend to follow traditional models concentrating on lobbying the government
– Institutions in clusters tend to represent only a small share of the overall cluster
• In the tourism cluster, many private sector associations exist for the different industries in the cluster, but none that stretches across
• In the textiles cluster, trade associations are organized by stage of the production process and represent often contrary interests
– The coordination among institutions within a cluster, and with the relevant government agencies, is limited
• In the Fashion cluster, three separate versions of the Fashion City master plan exist, all written by different combinations of government and private sector institutions
Source: Sasin Study, Author’s analysis.
64 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
New Roles of Industry Associations
• Competitive advantage resides solely inside a company or in its industry
• Competitive success depends primarily on company choices
• Competitive advantage (or disadvantage) resides partly in the locations at which a company’s business units are based
• Cluster participation is an important contributor to competitiveness
Traditional Emerging
Traditional RolesTraditional RolesTraditional RolesTraditional Roles New RolesNew RolesNew RolesNew Roles
• Lobby government- Trade and regulations
• Convene meetings for networking
• Lobby government- Trade and regulations
• Convene meetings for networking
• Negotiate with government- Trade and regulations
• Information collection and dissemination- E.g. regular benchmarking
• Joint marketing- E.g. trade fairs, missions
• Training- E.g. curriculum for managers- Close collaboration with outside
educational institutions- Sponsoring of targeted scholarships
• Research- E.g university partnerships- Standard setting and testing- Specialized research institutes
• Procurement- E.g. joint purchasing programs
• Environmental- E.g. demonstration projects- Research sponsorship
• Negotiate with government- Trade and regulations
• Information collection and dissemination- E.g. regular benchmarking
• Joint marketing- E.g. trade fairs, missions
• Training- E.g. curriculum for managers- Close collaboration with outside
educational institutions- Sponsoring of targeted scholarships
• Research- E.g university partnerships- Standard setting and testing- Specialized research institutes
• Procurement- E.g. joint purchasing programs
• Environmental- E.g. demonstration projects- Research sponsorship
Cluster activation and enabling
65 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Some Immediate Steps
• Professionalize public service through setting specific objectives, raising pay levels, and tying advancement and pay to performance
• Combine top-down and bottom-up initiatives to reduce corruption
• Make all economic transactions with government transparent via the Internet
• Create clear, measurable objectives for each government agency
• Relaunch efforts to publicize data on government agencies’ performance
• Assign cluster responsibilities to one agency or official with broad powers to align activities across government agencies
66 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thailand’s Competitiveness Agenda
• Upgrade the Business Environment
• Activate Cluster Development
• Transform Company Strategies
• Redefine the Roles of Business and Government
• Decentralize More of Economic Policy to the Regional Level
• Lead a Cross-National Strategy
67 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Influences on CompetitivenessMultiple Geographic Levels
Broad Economic AreasBroad Economic Areas
Groups of Neighboring Groups of Neighboring NationsNations
States, ProvincesStates, Provinces
Cities, Metropolitan Cities, Metropolitan AreasAreas
NationsNations
World EconomyWorld Economy
68 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
0
50,000
100,000
150,000
200,000
250,000
-2% 0% 2% 4% 6% 8% 10%
Change in GDP per Capita, CAGR, 1995 - 2000
Economic Performance Across Thai RegionsGDP per Capita Growth Rate, 1995 - 2000
Central
GDP per Capita, Thai Baht, 2000
DD
BangkokEastern
Northern
Western
Northeastern
Southern
= 100 million Baht regional GDP
Source: NESDB
Thailand: 78,519 Baht
Thailand: 2.2%
69 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.pptSource: Vanichseni: Development of Automotive Industry Master Plan (2002)
Concentration of Economic Activity in ThailandAutomotive Cluster
Bangkok• Bangchan General Assembly• Y.M.C. Assembly• Thai Honda Manufacturing• and 232 suppliers
Samutprakarn• Toyota Motor Thailand• Isuzu Motors (Thailand)• Siam Nissan Automobile• Siam V.M.C. Automobile• Thai Auto Work• International Vehicles• Thai Yamaha Motor• Thai Swedish Assembly• Hino Motors (Thailand)• Thonburi Automotive
Assembly
Ayudhaya• Honda Automobile (Thailand)
Pathumthani• Thai Suzuki Motor• and 39 suppliers
Samutsakorn• Thai Rung Union Car
Rayong• Auto Alliance (Thailand)• General Motors
(Thailand)• BMW Manufacturing
(Thailand)• Kawasaki Motors
Enterprise (Thailand)• MMC Sittipol• and 41 suppliers
Chachoengsao• Toyota Motor Thailand• Isuzu Motors (Thailand)
Chonburi• 55 suppliers
Samutprakarn • 158 suppliers
70 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Past Efforts at Regional Policy
• The geographic concentration of political power in the national capital has far reaching implications for the location of economic activity
– Companies locate their headquarters in the capital because chief executives spend considerable time dealing with government officials
• This effect is much stronger in countries with high levels of government regulations, and with high levels of bureaucracy and corruption
– Companies locate their operations in or close to the capital because infrastructure investments tend to favor this region where the relevant decisions are being made
– Assigned regional officials often have neither the power, the incentive, nor the knowledge – because of short assignments – to make effective decisions about regional infrastructure needs
• Thailand’s decision to nation-wide assign “CEO governors” as tested in Phuket and other regions is a step in the right direction
• Bolder steps are necessary to make progress towards a regional pattern of growth that mobilizes the full economic potential of the entire country
71 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Developing Thailand’s Provinces
• Develop other cities as secondary centers outside Bangkok– Infrastructure development– Investment in educational facilities tied to region’s clusters– Relocate government administration
• Create institutional capacity for business environment upgrading– Provincial public-private Competitiveness Councils– Provincial cluster initiatives
• Provide provincial institutions with authority– Block grants instead of tied grants for regions
• Thailand’s decision to nation-wide assign “CEO governors” as tested in Phuket and elsewhere is a step in the right direction
• Bolder steps are necessary to make progress towards a regional pattern of growth that mobilizes the full economic potential of the entire country
72 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Some Immediate Steps
• Have regional CEO governors report directly to the Prime Minister
• Create private sector-led regional competitiveness boards with a mandate to develop a regional economic plan
• Collect and publicize comparative competitiveness indicators for each region
73 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thailand’s Competitiveness Agenda
• Upgrade the Business Environment
• Activate Cluster Development
• Transform Company Strategies
• Redefine the Roles of Business and Government
• Decentralize More of Economic Policy to the Regional Level
• Lead a Cross-National Strategy
74 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Cross-National Strategy and CompetitivenessTraditional Views• Regions as free trade zones; regions as economic unions (e.g. European Union)
New View• A regional strategy as a powerful tool to enhance competitiveness in autonomous countries:
– Company Operations and Strategy• Increasing internal trade and investment • Enhancing the competitive capability of firms• Expanding trade in non-traditional export industries
– Business Environment• Policy coordination enhance the quality of the business environment
– Cluster Development• Cross-border cluster specialization and integration
– Economic Policy Process• Stimulating faster progress in economic policy at the national level
– Attracting Foreign Investment• Enhancing interest and investment in the region by the international community
• Competitiveness is often more readily achieved and sustained in moderately sized, competing economic units
75 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
• Coordinate macroecono-mic policies
• Eliminate trade and investment barriers within the region
• Simplify cross-border regulations and paperwork
• Guarantee minimum basic investor protections
• Set minimum environmental standards
• Set minimum safety standards
• Establish reciprocal consumer protection laws
• Agree on foreign investment promotion guidelines to limit forms of investment promotion that do not enhance productivity
• Coordinated competition policy
• Improve regional transportation infrastructure
• Create an efficient energy network
• Upgrade/link regional communications
• Upgrade/linkfinancial markets
• Upgrade higher education through facilitating specialization and student exchanges
• Expand cross-border business and financial information access and sharing
• Coordinate activities to ensure personal safety
• Establish ongoing upgrading process in clusters that cross national borders, e.g.
– Tourism
– Agribusiness
– Textiles and Apparel
– Information Technology
• Share best practices in government operations
• Improve regional institutions
– Regional development bank
– Dispute resolution mechanisms
– Policy coordination body
• Develop a regional marketing strategy
Factor Factor (Input)(Input)
ConditionsConditions
Factor Factor (Input)(Input)
ConditionsConditionsRegional
Governance
RegionalGovernance
Context for Context for Strategy Strategy
and Rivalryand Rivalry
Context for Context for Strategy Strategy
and Rivalryand Rivalry
Related and Supporting Industries
Related and Supporting Industries
Demand Demand ConditionsConditions
Demand Demand ConditionsConditions
Cross-National Economic Coordination Illustrative Policy Areas
76 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Thailand’s Competitiveness Agenda
• Upgrade the Business Environment
• Activate Cluster Development
• Transform Company Strategies
• Redefine the Roles of Business and Government
• Decentralize More of Economic Policy to the Regional Level
• Lead a Cross-National Strategy
77 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Defining Thailand’s Role in the World Economy
• Thailand has a vision for niche industries, but no vision for the country as a whole
• What will in 5-10 years be unique about Thailand as a location to do business relative to other countries in the region / the world?
– What advantages does Thailand’s location, history, and current business environment provide?
– How can Thailand move to the next stage of economic development?
78 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Back Up
79 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Symbolic Early Steps
Public sector• Negotiate FTA with the United States• Open the telecommunication market• Negotiate ASEAN Open Skies agreement• Reduce distortive taxes for particular product groups• Launch performance-based pay for government officials; publicize
government agencies performance data• Assign powers to align activities across government agencies
relevant to one cluster with one agency or official
Joint private-public• Create private sector-led provincial and cluster competitiveness
boards• Launch cluster-based efforts to improve secondary and vocational
education programs
80 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
Comparative Labor Market PerformanceUnemployment Rate in Selected Countries
0%
1%
2%
3%
4%
5%
6%
7%
Austra
lia
Indo
nesia
Hong
Kong,
China
Japa
n
Singap
ore
Korea
, Rep
.
United
Sta
tes
China
Mala
ysia
Thaila
nd
Unemployment Rate, 2000
Source: World Development Indicators (2002)
Back-UpBack-Up
81 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
0
5
10
15
20
25
30
35
40
1988 1992 1996 2000
% Population Below Poverty Line
Social PerformancePoverty Rates in Selected Countries
Source: World Development Indicators (2002)
Malaysia
Thailand
Indonesia
Philippines
Back-UpBack-Up
82 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Exports, Imports, and Exchange RateThailand
Exports in $1,000,000
Imports
Exports
Exchange Rate: US-Dollar per Thai Baht
4.9 cent = 1 Baht
2.2 cent = 1 Baht
Source: EIU (2002)
Back-UpBack-Up
83 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
0
500
1000
1500
2000
2500
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
Thai Labor Productivity Over TimeGDP per Employee by Broad Sector
Index
Services
Industry
Agriculture
Note: Index = GDP per agriculture in 1980 = 100, at constant 1995 US$Source: World Development Indicators, World Bank, SMC Analysis
CAGR:7.0%
CAGR:5.9%
CAGR:4.9%
CAGR:3.1%
CAGR:2.8%
CAGR:8.2%
CAGR:0.8%
CAGR:-9.5%
CAGR:1.5%
• Labor productivity growth has slowed across the Thai economy with the service sector taking the strongest hit after the Asian Crisis
Back-UpBack-Up
84 Copyright 2003 © Professor Michael E. PorterCAON Thailand 2003 05-04-03 CK.ppt
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
30% 35% 40% 45% 50% 55% 60%
Labor Productivity (GDP (PPP) per Employee),
2000
Employees as % of Population
Prosperity and Productivity PerformanceSelected Asian Economies
Vietnam
Thailand
Singapore
Hong Kong
China
Malaysia
Taiwan
Philippines IndonesiaMyanmar
GDP per Capita (PPP):
$20,000
$10,000
$5,000
Source: EIU (2002)
• Thailand’s prosperity rests on a high labor force participation rate, enabled by the lowest population and labor force growth rates in the region
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Thailand's Export PerformanceWorld Export Market Shares
0.60%
0.70%
0.80%
0.90%
1.00%
1.10%
1.20%
1.30%
1.40%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: WTO (2002)
• Thailand’s world export market share growth has sidelined after 1998
• Thailand’s service export market share has fallen since the mid-1990s
World export share in %
Services
Goods
TOTAL
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0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Singapore
China
Korea
Taiwan
MalaysiaThailand
VietnamPhilippines
Indonesia
World Trade in Goods and ServicesAsian Countries’ World Market Shares Over Time
Source: WTO (2002)
• Thailand’s world market share has followed the trend of many other Asian countries except China, but suffered less from the downturn in the world electronics market
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0%
15%
30%
45%
-10% -5% 0% 5% 10% 15% 20% 25%
Comparative Inward Foreign InvestmentSelected Asian Economies
Thailand
Malaysia
FDI Stocks as % of GDP, Average 1998-2000
FDI Inflows as % of Gross Fixed Capital Formation, Average 1998-2000
Philippines
Vietnam
China
Source: World Investment Report 2002-
• Thailand has attracted significant foreign direct investment recently, but still has a lower level of foreign investment than other Asian countries
Indonesia
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Comparative Composition of the Thai EconomySelected Countries
0%
20%
40%
60%
80%
100%
Th
aila
nd
Ind
on
esi
a*
Ph
ilip
pin
es
Ma
lays
ia
Ko
rea
Jap
an
Au
stra
lia
US
A
Isra
el
Sin
ga
po
re
Service
Industry
Agriculture
Share of Employment, 2000
• If Thailand is to achieve broad improvements in prosperity, the upgrading of Thai agriculture needs to be a key element of the competitiveness agenda
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Thailand’s Export Structure
0%
2%
4%
6%
8%
10%
12%
14%
16%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
Health Care
Food/Beverages
Entertainment
Office
Personal
Textiles/Apparel
Transportation
Multiple Business
Petroleum/Chemicals
Materials/Metals
Housing/Household
Power
Semiconductors/Computers
Telecommunications
DefenseForest Products
Thailand’s World Export Share by Broad Cluster, 2000
Country Export Share by Broad Cluster,
2000
Thailand’s average goods export share:
1.24%
• Except in semiconductors/computers, where Thai exports are concentrated on a few industries, Thai companies in these broad clusters tend to have significant positions in many of the clusters’ industries
49% of exports
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Value(in $1,000)
Value(in $1,000)SubclusterSubcluster ClusterCluster World Market
Share
World Market Share
Change in Share1995 - 2000
Change in Share1995 - 2000
Office Machine PartsSemiconductorsFish, ProcessedFabricated PlasticsShell FishMisc Multi Business GdsComputersRice, Cereals, PreparedNatural RubberTrucks, Road VehiclesPeripheralsPetroleum ProductsTV ReceiversHeating, Cooling Equip.Other OuterwearJewellery, CoinsRotating ElectricTelecommunicationsFootwearSwitches, Relays, etc.SugarFurniturePrecious,Semi-P StonesConverters,InductorsToys,Games,Sporting
Office Machine PartsSemiconductorsFish, ProcessedFabricated PlasticsShell FishMisc Multi Business GdsComputersRice, Cereals, PreparedNatural RubberTrucks, Road VehiclesPeripheralsPetroleum ProductsTV ReceiversHeating, Cooling Equip.Other OuterwearJewellery, CoinsRotating ElectricTelecommunicationsFootwearSwitches, Relays, etc.SugarFurniturePrecious,Semi-P StonesConverters,InductorsToys,Games,Sporting
OfficeSemiconductors/ComputersFood/BeveragesPetroleum/ChemicalsFood/BeveragesMultiple BusinessSemiconductors/ComputersFood/BeveragesMaterials/MetalsTransportationSemiconductors/ComputersPetroleum/ChemicalsEntertainment/LeisureMultiple BusinessTextiles/ApparelPersonalPowerTelecommunicationsTextiles/ApparelPowerFood/BeveragesHousing/HouseholdPersonalPowerEntertainment/Leisure
OfficeSemiconductors/ComputersFood/BeveragesPetroleum/ChemicalsFood/BeveragesMultiple BusinessSemiconductors/ComputersFood/BeveragesMaterials/MetalsTransportationSemiconductors/ComputersPetroleum/ChemicalsEntertainment/LeisureMultiple BusinessTextiles/ApparelPersonalPowerTelecommunicationsTextiles/ApparelPowerFood/BeveragesHousing/HouseholdPersonalPowerEntertainment/Leisure
4.72%2.19%
18.48%2.01%
13.83%0.99%1.79%
16.94%42.26%
2.10%2.87%0.92%4.10%3.41%2.95%4.58%3.15%1.69%2.27%1.13%9.29%1.75%1.54%2.44%1.77%
4.72%2.19%
18.48%2.01%
13.83%0.99%1.79%
16.94%42.26%
2.10%2.87%0.92%4.10%3.41%2.95%4.58%3.15%1.69%2.27%1.13%9.29%1.75%1.54%2.44%1.77%
1.93%0.42%2.63%0.89%
-3.88%0.58%0.44%
-3.46%7.23%1.95%1.01%0.53%
-0.61%0.44%
-0.48%-0.52%1.31%
-0.09%-3.91%0.33%
-1.54%-0.01%-2.49%0.32%
-1.08%
1.93%0.42%2.63%0.89%
-3.88%0.58%0.44%
-3.46%7.23%1.95%1.01%0.53%
-0.61%0.44%
-0.48%-0.52%1.31%
-0.09%-3.91%0.33%
-1.54%-0.01%-2.49%0.32%
-1.08% Source: UNCTAD Trade Data. Author’s analysis. Italics indicate absence of revealed comparative advantage (RCA < 1)
Top Thai Export SubclustersBy 2000 Export Value
$6,537,304$5,560,312$2,091,233$1,939,309$1,865,019$1,828,971$1,715,254$1,667,088$1,510,591$1,407,223$1,405,768$1,351,823$1,092,099$1,076,150$1,051,094
$901,301$880,026$845,054$832,950$702,792$640,107$604,336$580,004$545,534$524,256
$6,537,304$5,560,312$2,091,233$1,939,309$1,865,019$1,828,971$1,715,254$1,667,088$1,510,591$1,407,223$1,405,768$1,351,823$1,092,099$1,076,150$1,051,094
$901,301$880,026$845,054$832,950$702,792$640,107$604,336$580,004$545,534$524,256
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Top Thai Export SubclustersBy 2000 World Market Share
SubclusterSubcluster ClusterCluster World Market Share
World Market Share
Change in Share1995 - 2000
Change in Share1995 - 2000
Value(in $1,000)
Value(in $1,000)
Natural RubberVegetables, PreparedFish, ProcessedRice, Cereals, PreparedMolassesShell FishSulphur, Iron PyriteFruit,Preserved,PreparedLeather ProductsRice, CerealsSugarNon-Textile ClothingVegetables, ProcessedClock,Watch PartsMen's Under GarmentsWall FurnishingsDecorative ProductsHair CareRope,CordageMeats, ProcessedSound Equipment PartsSynthetic Fiber, WasteOffice Machine PartsBase Metal Articles,EquipJewellery,Coins
Natural RubberVegetables, PreparedFish, ProcessedRice, Cereals, PreparedMolassesShell FishSulphur, Iron PyriteFruit,Preserved,PreparedLeather ProductsRice, CerealsSugarNon-Textile ClothingVegetables, ProcessedClock,Watch PartsMen's Under GarmentsWall FurnishingsDecorative ProductsHair CareRope,CordageMeats, ProcessedSound Equipment PartsSynthetic Fiber, WasteOffice Machine PartsBase Metal Articles,EquipJewellery,Coins
Materials/MetalsFood/BeveragesFood/BeveragesFood/BeveragesFood/BeveragesFood/BeveragesMaterials/MetalsFood/BeveragesTextiles/ApparelFood/BeveragesFood/BeveragesTextiles/ApparelFood/BeveragesPersonalTextiles/ApparelHousing/HouseholdHousing/HouseholdPersonalTextiles/ApparelFood/BeveragesEntertainment/LeisureTextiles/ApparelOfficeHousing/HouseholdPersonal
Materials/MetalsFood/BeveragesFood/BeveragesFood/BeveragesFood/BeveragesFood/BeveragesMaterials/MetalsFood/BeveragesTextiles/ApparelFood/BeveragesFood/BeveragesTextiles/ApparelFood/BeveragesPersonalTextiles/ApparelHousing/HouseholdHousing/HouseholdPersonalTextiles/ApparelFood/BeveragesEntertainment/LeisureTextiles/ApparelOfficeHousing/HouseholdPersonal
42.26%21.64%18.48%16.94%15.94%13.83%13.18%12.24%12.19%
9.50%9.29%7.95%7.87%7.73%7.16%6.45%6.02%5.23%4.92%4.87%4.81%4.76%4.72%4.68%4.58%
42.26%21.64%18.48%16.94%15.94%13.83%13.18%12.24%12.19%
9.50%9.29%7.95%7.87%7.73%7.16%6.45%6.02%5.23%4.92%4.87%4.81%4.76%4.72%4.68%4.58%
7.23%-9.42%2.63%
-3.46%1.07%
-3.88%12.83%-1.63%-3.01%-0.36%-1.54%-4.34%-5.20%-2.15%-0.95%1.28%
-4.20%-3.59%-0.57%2.97%
-0.20%2.12%1.93%1.78%
-0.52%
7.23%-9.42%2.63%
-3.46%1.07%
-3.88%12.83%-1.63%-3.01%-0.36%-1.54%-4.34%-5.20%-2.15%-0.95%1.28%
-4.20%-3.59%-0.57%2.97%
-0.20%2.12%1.93%1.78%
-0.52%
$1,510,591$4,044
$2,091,233$1,667,088
$38,723$1,865,019
$194,972$322,397$182,287
$83,258$640,107$388,094
$23,689$140,683$239,699$105,129
$45,740$84,507$63,908
$349,391$484,497$188,811
$6,537,304$222,328$901,301
$1,510,591$4,044
$2,091,233$1,667,088
$38,723$1,865,019
$194,972$322,397$182,287
$83,258$640,107$388,094
$23,689$140,683$239,699$105,129
$45,740$84,507$63,908
$349,391$484,497$188,811
$6,537,304$222,328$901,301
Source: UNCTAD Trade Data. Author’s analysis.
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Mar
ket I
ncen
tives
Cluste
rs
Deman
d Con
ditio
ns
Vitality
of C
ompe
tition
Physic
al In
frastr
uctu
re
Admini
strat
ive R
ules
and
Pro
cedu
res
Capita
l Mar
kets
Human
Res
sour
ces
Scienc
e an
d Tec
hnolo
gy
National Business Environment OverviewThailand’s Relative Strengths and Weaknesses
30
20
35
25
45
Source:Global Competitiveness Report 2002
Factor Conditions Context for Firm Strategy and Rivalry Demand Conditions Related and Supporting Industries
Rank
Overall rank: 35
BETTER WORSE
• Thailand’s weak factor conditions in the face of solid market incentives lure companies to compete on low input costs
40
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Public Spending on EducationSelected Asian Countries
*No growth rate data availableSource: UN – Human Development Indicators
0%
1%
2%
3%
4%
5%
6%
-2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0%
Public expenditure on education, Share of
GNP, 1995-97
Change of public education spending as % of GNP, 1995-97 to 1985-87
Malaysia
PhilippinesS Korea
Thailand
Laos
Indonesia
China
Singapore Hong KongVietnam*India
Cambodia*
Myanmar
Sri LankaJapan*
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• About 10% of the leading Asian universities included in a recent study are located in Thailand
• Thai universities tend to rank in the bottom half or even bottom quartile of the performance distribution
• The exception are MBA-programs, where Thailand hosts two programs ranked in the top half of the top 50 universities analyzed
0
1
2
3
4
To
p 2
5%
2n
dQ
ua
rtia
l
3rd
Qu
art
ial
Bo
ttom
25
%
Multi-Discipline
Science &Technology
Business(MBA)
Quality of Thai UniversitiesAsian Comparison
Source: Asiaweek, 2000
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Factor(Input)
Conditions
Factor(Input)
Conditions
Telephone/Fax Infrastructure Quality 28
Overall Infrastructure Quality29
Air Transport Infrastructure Quality 32
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
Railroad Infrastructure Quality 39
Port Infrastructure Quality 35
Physical InfrastructureThailand’s Relative Position
Note: Rank by countries; overall Thailand ranks 35 out of 80 countries (35 on National Business Environment, 53 on GDP pc 2001)Source: Global Competitiveness Report 2002
• Thailand has a relatively strong communications and domestic transportation infrastructure thanks to heavy investments in the run-up to the Asian crisis
– Thailand has made significant use of public-private partnerships in the development of its infrastructure
• Problem areas are
– Low quality railroad system
– Regional disparities between a well developed, but congested infrastructure in Bangkok and less developed infrastructure elsewhere
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Availability and Use
• Thailand has fewer phone lines and mobile phones than comparable countries, such as Malaysia
• Prices for phone calls, fixed and mobile, in Thailand are more expensive than in other countries
• Thailand scores low on many of the indicators measuring Internet-intensity of the economy
Communication Infrastructure
Source: Sasin Project, WEF IT Competitiveness Report
DistancesDistances ThailandThailand
<50<50 33
50-10050-100 66
100-150100-150
150-200150-200
200-350200-350
350-500350-500
>500>500
99
99
1212
1515
1818
MalaysiaMalaysia
1.351.35
3.393.39
6.676.67
PhilippinesPhilippines
2.592.59
Price Levels for Domestic Phone Calls
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Factor(Input)
Conditions
Factor(Input)
Conditions
Local Equity Market Access 21
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
Country Ranking, Arrows indicate a
change of 5 or more ranks since 1998
Ease of Access to Loans 46
Venture Capital Availability 42
Financial Market Sophistication 36
Financial MarketsThailand’s Relative Position
Note: Rank by countries; overall Thailand ranks 35 out of 80 countries (35 on National Business Environment, 53 on GDP pc 2001)Source: Global Competitiveness Report 2002, McKinsey 2002, Sasin Study 2003
• Thailand’s financial system is overcoming the fall-out of the Asian Crisis but remains effected by inefficient government regulation
– The non performing loans-problem is getting under control
• Thai equity markets are small, and listed companies tend to have low market capitalization
• Thai companies report difficulties in getting access to loans, and are facing a retail banking system with low efficiency
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Corruption RankingSelected Asian Countries
Rank 2002
4.
14.
27.
36.
42.
57.
61.
65.
75.
88.
Country
Singapore
Hong Kong
Taiwan
Malaysia
South Korea
China
Thailand
Philippines
Vietnam
Indonesia
Change in Rank since 1998
+3
+2
+2
-5
+4
-1
+4
-4
+7
+1
Note: Rank out of 91 countries, change in rank calculated for constant sample of countriesSource: Transparency International, author’s calculations, Corruption in Thailand Report - OfficeofCivilServiceCommi ssi on, 2 0 0 1
• In Thailand, corruption is most prevalent in the Custom Authority followed by Government Procurement and the Tax Agency/Inspectors
• Thai business would be willing to pay 12.5% more tax if that would eliminate corruption
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Export Destinations for Thai Products
0
10
20
30
40
50
60
70
80
90
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
ASEAN
USA
EU
Japan
Hong Kong China Middle East
Eastern EuropeOthers
Source: Economic and financial statistics, April 2002, Bank of Thailand
Share of Thai Export by Destination
• Thai companies export predominantly to advanced markets in the United States, Europe, and Japan
• Growing markets are China and the ASEAN countries, which have again reached their 1995 pre-Asian Crisis relative level
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Top 20 Thai-Based Companies Asiaweek 1000, 2000
Sales ProfitProfit as
%$ Millions $ Millions of sales
1 Petroleum Authority Oil refining, 6,006 149 2.52 Elec. Generating Auth. Power generation 3,550 -641 —3 Siam Cement Cement 2,935 -124 —4 Thai Airways Air transport 2,845 140 4.95 Seagate Technology Semiconductors 1,596 21 1.36 Charoen Pokphand Animal Feed 1,428 109 7.77 Esso Standard Thailand Oil refining, 1,388 -156 —8 Toyota Motor (Thailand) Car assembly, sales 1,331 -39 —9 Shell Company Of Oil refining, 1,301 10 0.8
10 Telephone Organization Telecommunications 1,252 51 4.111 Mmc Sittipol Car assembly, sales 1,039 3 0.312 Bangchak Petroleum Oil products 1,025 -46 —13 Thai Oil Oil refining 929 -500 —14 Siam Makro Public Co. Cash and carry 912 19 2.115 Caltex Oil (Thailand) Oil refining, 837 -42 —16 Coms. Auth. Of Telecommunications 796 98 12.317 Tri Petch Isuzu Sales Car dealership 674 -53 —18 Boonrawd Trading Beer & soft drink 569 2 0.419 Honda Cars Mfg. Car assembly, car 536 21 420 Honda Cars Car dealership 502 6 1.1
Company Main Business
• The list of top Thai companies is dominated by government-owned companies, subsidiaries of foreign companies, and a few Thai conglomerates
Source: Asiaweek
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Comparative Company PerformanceNon-Japanese Companies in Asia 1000, 2000
• Thailand hosts 3.3% of Asia’s companies outside of Japan that are part of the Asian 1000, roughly proportional to its share of of GDP in the region
• Thai companies tend to have lower sales, a smaller sales/employee ratio, and lower profits as % of sales than other Asian companies
Source: Asiaweek, author’s calculations
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
China
South Korea
Indonesia
India
Australia
Hong Kong
Malaysia
Singapore
New Zealand
Taiwan
Thailand
Philippines
Pakistan
Singapore
South Korea
Pakistan
Philippines
Taiwan
New Zealand
Malaysia
Australia
India
Indonesia
Thailand
Hong Kong
China
Pakistan
India
Australia
South Korea
Singapore
Indonesia
Taiwan
Thailand
New Zealand
Malaysia
China
Hong Kong
Philippines
Philippines
Singapore
South Korea
Malaysia
Taiwan
New Zealand
Hong Kong
Thailand
Australia
Indonesia
India
Pakistan
China
Average Sales Sales/Employee Sales/Assets Assets/Employee
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Groups of Neighboring Nations, e.g. Thailand, Malaysia, Vietnam, …
Groups of Neighboring Nations, e.g. Thailand, Malaysia, Vietnam, …
Broad Economic Areas, e.g. ASEAN
Broad Economic Areas, e.g. ASEAN
Proximity increases the potential pay-off to coordinated actions to enhance the microeconomic business environment
Proximity enables meaningful specialization of clusters along the value chain while stimulating competition between national clusters
Proximity enables countries to jointly market the attractiveness of the region to the outside world
Each country can significantly enhance productivity
Stronger regional institutions and governance mechanisms are required to attain these benefits
Cooperation within broad regions can improve the microeconomic business environment mainly by removing barriers and impediments to trade, investment, and exchange of technology and skills
A more efficient and more level playing field enhances trade and investment in the economic area
Levels of Regional Economic Cooperation Back-UpBack-Up
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Defining Thailand’s Role in the World EconomyThoughts Towards A Vision…
• Stable, industrious, open for the world; Thailand, the gateway to South-East Asia
– More stable macroeconomic, political, and social context than China, Korea, Malaysia, Philippines, and Indonesia
– Larger domestic market than Singapore and Hong Kong; preferential access to a larger regional market than Korea
– More transparent and open to competition than Malaysia, Indonesia, and China
– Higher levels of education, infrastructure quality, institutional base, and technological proficiency than China, Vietnam, Myanmar, and Laos
– Broader array of manufacturing clusters, many not considered ”high tech”, than Taiwan and Singapore
– Personal consumer services (tourism, health care provision) versus business services in Hong Kong and Singapore
• Thailand – the Ireland of Asia?